2 Key Ways to Shop for a Defensive Stock in a Turbulent Market

Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) or Park Lawn Corp. (TSX:PLC)? Finding a defensive stock isn’t always easy.

A confluence of market stressors is turning investors toward defensive stocks at the moment. With trade tensions, low precious metals prices, low oil prices, and a rising cost of living, the climate on the investment front is one of looming uncertainty. Indeed, the final week of May showed just how widespread an infection of fear can spread in the TSX, and how quickly. So just how does one spot a defensive stock right now?

Find a “Goldilocks” bank

Having witnessed the market bloodbath that was the final week of May, it might not behoove an investor seeking defensiveness in financials to put too much faith in any single Canadian banking stock at the moment. Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is arguably the least geographically diversified bank, arguably making for a pick for stalwart domestic economy bulls only.

Then we have Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), which has the opposite problem (or benefit, depending on one’s stance), of being the most exposed to foreign markets. Relatively unchanged at the time of writing, investors can now go back to debating whether or not Scotiabank’s dividend yield of 4.84% overrides negative returns over the last 12 months to make for a rewarding stock.

The issue here is that while some Canadian banks are too exposed to the domestic market, others are too exposed to international ones. An individual investor is then forced to choose which type of overexposure is the best (or worst, as the case may be). The trick, then is to find something in the middle – in other words, a diversified “Goldilocks” bank that mixes domestic and international exposure in more or less equal measure.

Separate the nice-to-haves from the must-haves

High cost items will likely be among the first to suffer should Canada find itself in a recession; however, with so much uncertainty in the markets, the threat of a downturn is almost as bad as the real thing.

That’s why, with rising overheads and a plunging share price, luxury retail stocks like Canada Goose (TSX:GOOS)(NYSE:GOOS) could find themselves in a bad position. With retail suffering in general as the populace tightens its belts, high-cost luxury items such as the cold weather apparel produced and sold by Canada Goose may find itself going out of fashion if adverse economic conditions should persist.

Now contrast this with something like Park Lawn (TSX:PLC). Having recently climbed past its record-setting price to hit a 52-week high, the funerary and memorial service provider occupies a solid niche in the market, representing one of the most secure industries out there. If investors want a stock that can weather a recession, it’s hard to think of a better choice for the cautious dividend portfolio owner.

The bottom line

Having shed a significant amount over the last couple of weeks of trading, Scotiabank’s bleeding is starting to slow – but the banker’s still not a buy. CIBC is perhaps overly exposed to a domestic market downturn, and as such might prove a risky play in the current economic climate. Investors wishing to get more defensive could consider clean energy stocks, gold, and proven consumer staples.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. Bank of Nova Scotia is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Hand Protecting Senior Couple
Dividend Stocks

3 Blue-Chip Stocks So Safe Canadians Can Hold Them Until They Die

Canadian National Railway (TSX:CNR) is a stock worth owning for life.

Read more »

stock research, analyze data
Dividend Stocks

14.7% Dividend Yield? Buy Up This Passive-Income Stock in Bulk!

That dividend yield is high, but it still comes with some strong reasons to consider the stock outside of a…

Read more »

Canadian Dollars bills
Dividend Stocks

1 Dividend Stock That Could Create $5,000 in Tax-Free Passive Income in 10 Years

Here's why Fortis (TSX:FTS) certainly looks like a top dividend stock with outsized total return upside worth buying right now.

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

The Best Canadian ETFs $100 Can Buy on the TSX Today

Dividend ETFs like BMO Canadian Dividend ETF (TSX:ZDV) can add passive income to your portfolio.

Read more »

space ship model takes off
Dividend Stocks

Is WSP Global Stock a Buy for its 0.6% Dividend Yield?

Here's why investors should look beyond WSP Global stock's tiny dividend yield.

Read more »

hand stacking money coins
Dividend Stocks

6 Percent Dividend Yield? I’m Buying This TSX Passive-Income Stock in Bulk!

Are you looking for a TSX passive-income titan? Here's one stock that pays handsomely that you will regret not buying…

Read more »

Dividend Stocks

Top Canadian Stocks to Buy Now and Hold for a Lifetime in a TFSA

If you want stability in your long-term TFSA, then these four are choices you can pick up again and again.

Read more »

RRSP Canadian Registered Retirement Savings Plan concept
Dividend Stocks

Here’s the Average RRSP Balance at Age 54 for Canadians

ETFs like the BMO Canadian Dividend ETF (TSX:ZDV) tend to be good RRSP holdings.

Read more »